Central American Common Market

Central American Common Market

(CACM), trade organization envisioned by a 1960 treaty between Guatemala, Honduras, Nicaragua, and El Salvador. The treaty established (1961) a secretariat for Central American economic integration, which Costa Rica joined in 1963; Panama now has observer status in some areas. By 1970 trade between member nations had risen more than tenfold over 1960 levels, and imports doubled and a common tariff was established for 98% of the trade with nonmember countries. However, the 1969 war between El Salvador and Honduras led to the latter's effective withdrawal, and the political turmoil in Central America during the 1970s and 80s left the organization moribund. The 1990s saw a revival of the organization, but its ultimate place with respect to the Central American Free Trade Agreement (signed 2004, and including the Dominican Republic and the United States) and the proposed (2001) Free Trade Area of the Americas is unclear.

Central American Common Market

(CACM), an organization formed by the developing countries of Central America for the purpose of gradually uniting the national economies of the member nations into one “common market.” The Central American countries embarked on economic integration before other developing countries, including those of Latin America. The General Treaty of Central American Economic Integration was concluded in Managua, Nicaragua, in 1960 and took effect on June 4, 1961. The member countries are Guatemala, Nicaragua, El Salvador, Honduras (prior to January 1971), and Costa Rica (from 1962 to September 1972 and since 1978).

Under the treaty the CACM countries agreed to liberalize reciprocal trade gradually, to introduce a uniform Central American customs nomenclature, and to apply a uniform “common market” tariff to nonparticipating countries. The treaty forbids the subsidizing of exports and “disloyal competition,” considers the question of financing economic development on the basis of regional equality, establishes the procedure for transport and transit shipment, provides for uniform tax incentives for industrial development, and authorizes the free movement of workers and capital between the member countries.

A uniform tariff was introduced in 1965. By the early 1970’s 98 percent of Central American customs items had been given free-trade status. The remaining 2 percent, however, accounted for one-fifth of the value of the intraregional trade turnover and included such commodities as petroleum products, wheat, sugar, coffee, electrical equipment, and vehicles. In 1977 the trade turnover within the CACM was valued at approximately $600 million, compared with $80 million in 1961. The share of intraregional exports in the overall exports of CACM countries rose from 7 percent to 28 percent during the same period. There was a significant growth of trade in finished industrial goods, especially those produced by industries processing nonagricultural raw materials.

Integration is developing slowly in industry, agriculture, electric power generation, transportation, and communications. The first branches of industry to be integrated were those that were self-sufficient within the CACM. Measures have been taken to integrate enterprises for the production of tires, caustic soda, insecticides, fertilizers, plywood, and flour. The production of grain is being coordinated, and four plans have been drawn up for the unification of energy systems. In 1962 a system of accounting was introduced that was based on a common accounting currency, the Central American peso, pegged to the US dollar.

Since the early 1970’s Central American economic integration has been plagued by difficulties and conflicts stemming from the relatively low world prices of Central American exports, from the lack of incentives for capital investments in multinational projects, and from the mercenary actions of imperialist monopolies. The ruling circles, especially those of industrially more developed Guatemala and El Salvador, and the foreign monopolies backing them are attempting to resolve a number of integration problems at the expense of the less economically developed partners.

The critical situation in the CACM is evidenced by the rupture in trade relations between Honduras and El Salvador after the armed conflict between the two countries in 1969 and by the “trade war” that has broken out among trading partners in the CACM.

In adhering to the principle of “equal opportunity” for foreign and national capital, the CACM has given US monopolies a new, broader market, as well as an opportunity to circumvent import restrictions and to take advantage of low taxes and cheap labor. This has led to a sharp rise in direct US investments in Central America—from $37 million in 1960 to $800 million in 1977. More than 75 percent of the industrial enterprises covered by CACM agreements belong to foreign, primarily US, capital. Holding powerful economic levers, US imperialism is also trying to use integration to form a military-police bloc in Central America.

The High Level Committee, composed of representatives of all five countries, was founded with the aim of resolving the critical situation in the CACM. However, the 13 sessions of the committee that were held between 1973 and 1975 accomplished very little, essentially because of the different attitudes of the various CACM countries toward foreign capital.

At the July 1975 conference of the presidents of Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica it was decided to draft a new treaty that would, among other things, meet the criteria of technical and political feasibility and that would guarantee the appropriate participation of each of the five countries in the integration process.

The creation of the CACM has not helped solve the most pressing problems in the social and economic development of the Central American countries: the elimination of a one-crop economy, the lessening of these countries’ dependence on the dictates of US monopolies, agricultural reforms, and raising the living standard of the working masses.

Adoption of a treaty of friendship and non-aggression by the democracies of Central America would formalize a regional security relationship that reinforces the economic framework being pursued through the Central American common market and CAFTA.

South American trade bloc Mercosur is drafting a preferential tariff agreement with the Caribbean Communities (Caricom) and the Central American Common Market (MCCA), the Brazilian minister of development, industry and foreign trade said Tuesday.

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